Tahoe real estate: What to know about the PACE Clean Energy Program (opinion)
Special to the Sun-Bonanza
Let me be clear, the Tahoe Sierra Board of Realtors (TSBOR) supports homeowners’ efforts to upgrade their home’s energy efficiency. This practice, properly executed, is a sound long-term environmental and economic investment.
So, what drawbacks could there be with a government-sponsored program to enable homeowners in the Tahoe-Truckee area to reduce their utility bills while helping to protect the environment? Plenty.
WHAT ARE THE FACTS?
First, here are some background facts about this important issue:
Fact: The Property Assessed Clean Energy (PACE) program allows homeowners to finance, through an assessment on their property, various energy conservation-related improvements, such as energy-rated water heaters, windows, and solar panels.
Fact: When the house is sold, the assessment may transfer with the property and become the responsibility of the new owner.
Fact: Loans are repaid over as long as 20 years. A PACE lien is similar in form and function to a property tax lien. In fact, it’s a line item on the homeowner’s property tax bill, and is paid at the same time and the same way as property taxes.
AND WHAT ARE THE REALITIES?
There are definitely some downsides and risks to this increasingly popular program that should be carefully considered by every homeowner. Here are five key realities about PACE liens:
Reality No. 1: You may not be able to refinance your mortgage with a conventional mortgage. Fannie Mae and Freddie Mac are prohibited from purchasing mortgages with PACE liens on them because, as tax liens, they put mortgage lenders in a secondary position if the loan cannot be repaid.
Reality No. 2: You may wind up borrowing too much on your property as the loan limits are very generous. For example, the owner of a $400,000 home could borrow up to $60,000 on their home. Caution is needed to avoid over-leveraging your home with a PACE lien. Like a mortgage, the PACE lien comes out of your equity.
Reality No. 3: A PACE lien can be very expensive. Interest rates are generally much higher than those for mortgages or home equity lines of credit. Worse, you will likely have to pay off the lien in order to sell the property to a buyer who wants to obtain conventional financing. Paying off a PACE lien will reduce the amount you can realize from the sale of your home.
Reality No. 4: You may have a hard time finding potential buyers for your home. Because Fannie Mae and Freddie Mac will not approve mortgages for properties with an existing PACE lien, conventional buyers will not be able to purchase your property unless the lien is paid off before the close of escrow. This will limit your buyer pool to all-cash and “non-conventional” buyers.
Reality No. 5: Limited mortgage options can create an unfortunate ripple effect. If fewer people can buy your property, it may take longer to sell. The longer the house sits on the market, the less desirable it may become, which could result in a lower sales price.
Ellen Grace is 2016 president of the Tahoe Sierra Board of Realtors. Visit tahoemls.com to learn more.
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